1 The First Globalization Lessons from the French [Published as Notre première mondialisation: leçons d’un échec oublié (Seuil, 2003)] Suzanne Berger Raphael Dorman-Helen Starbuck Professor of Political Science Massachusetts Institute of Technology Cambridge, Massachusetts, USA Please do not copy or circulate. This project benefited from the collegial and financial support of the Centre de Recherche en Gestion (Ecole Polytechnique), Sciences Po, the Industrial Performance Center (MIT), and the Department of Political Science (MIT). My thanks to Peter Gourevitch, Pierre Hassner and Richard Samuels, for close readings, criticisms, suggestions and encouragement. Ambroisine Dumez provided valuable research assistance. 2 Introduction With the end of the cold war, globalization has become the international horizon of our expectations and fears. Before, we saw ourselves as citizens of nations in a world in which state frontiers encased and protected societies and economies. Today we see ourselves as individuals in a vast open field of international exchanges. Across this great unbounded space, goods, services, and money circulate apparently unimpeded by man-made barriers. From all sides people announce that a new era of human history is opening. A rising tide of anti-globalization protests shows how threatening this new state of affairs appears to many. To look back at the experience and understanding of the challenges to democracy and social well-being of people facing an open international economy in the years before World War I is to observe our own times from a new perspective. This essay on the "first globalization" tries to widen the aperture of the lens of interpretation through which we see our own situation and identify our options. By returning to the political debates and social and economic struggles of countries in the North Atlantic economy at the time of the first globalization, from the 1870s to the First World War, the book seeks to alter our sense of inhabiting a unique and radically new world. The focus will be on French experience during the first globalization. In the four decades before World War One, France was second only to Britain in the extent of its involvement in the global economy. Unlike Britain, however, very little of the capital the French sent abroad went to their colonies, but, as today, went to independent countries like Russia, Turkey and Argentina. In France, unlike Britain and many other European countries, changes due to emigration and immigration played a lesser role in transmitting the transformations of the international economy. In this respect as well, albeit for different reasons, the French experience was closer to our own today. A hundred years ago the advanced countries of West Europe and America were engaged in a process of globalization similar to the one we face at the beginning of the 21st century. By globalization I mean a set of changes in the international economy that tend to produce a single world market for goods and services, labor, and capital. In the period of the first globalization, from the 1880s to the First World War, the international economy had higher levels of trade, capital mobility, and migration of people across borders than the world would see again until the mid-1980s. The falling costs of transportation catalyzed a vast movement of people out of low-wage economies. European countries like Ireland and Sweden lost as much as 10% of their population a decade in the years before the War.1 Some 55 million Europeans resettled in the 3 New World. Within West Europe, workers moved quite freely across borders, and they traveled without need of passports, residence permits, or working papers. Despite political rhetoric and new legislation on tariffs, levels of imports and exports were rising throughout this period, and trade was a larger part of national economies in 1910 than it would be in 1950. 2 Floods of portfolio and direct investment poured out of the developed countries into the New World and into the developing countries on the periphery of Europe and Asia. In some years Britain exported as much as 9% of its GDP, and other European countries approached this figure as well.3 Over the whole period 1887-1913 French net capital exports were equal to about 3.5% of French national income---a greater proportion than today.4The French sent their savings around the world, and especially to Russia, the Ottoman Empire, and Latin America. French capitalists delocalized production, and set up plants in Russia, Poland, Turkey and elsewhere. Economists disagree over when --and whether-- our contemporary economy reached the levels of factor mobility and international integration of the first globalization. But it seems clear that today, with the exception of migration, we have returned and gone beyond the high watermarks of the first globalization ---after some seventy years between the First World War and the 1980s, during which trade, migration, and international capital flows were severely reduced and controlled. This is an essay in history, driven by a purpose: to discover how, confronted with many of the constraints, pressures, and choices that we identify with globalization, people in another time analyzed and responded to these predicaments. The forty years before World War One are our only previous experience of liberal democratic politics within a largely open international economy. There we should be able to observe the strains on democracy of politics in a borderless society. There we should be able to pick out the winners and losers of globalization and track the efforts of the strong to enlarge their advance and of the weak to cushion themselves against unfavorable shifts in domestic economic structures. There we should be able to observe the fate of domestic social reform in a world of mobile assets. Lessons from the First Globalization What can we learn about politics from a return to the controversies and struggles of the four decades before the First World War? There is a major debate among economists over whether "Globalization Today [is}Really Different than Globalization a Hundred Years Ago?" to borrow the title of an article by Michael Bordo, Barry Eichengreen, and Douglas Irwin. In it they argue that the differences between the first and second globalizations are too great to 4 allow us to develop any predictions about the trajectory and tensions of societies today.5 It would be a mistake, of course, to expect exact parallels between the situation obtaining in the international economic and political systems linking the advanced countries of 1913 and today's international economy.6 The convergence effects of the first globalization in the North Atlantic economy as a whole were driven by migratory flows---which today play a much smaller role. Today less-developed countries figure as potential production sites from which to export back to the more advanced countries. The low wages of large pools of reasonably-well educated workers and potentially large new reserves of consumers are incentives for shifting production out of advanced rich countries. Neither of these factors loomed large in the first globalization, although they were far from insignificant. There have been real changes in global capital markets, relative even to the degree of integration achieved before the collapse during the two world wars and the Depression. The velocity and gross volume of capital movements today are on a scale that dwarfs that of the turn of the century. New financial instruments, new technologies of communication, and a greater concentration of asset-holders with the growth of institutional investors have created quite a different environment. Trade today includes significant proportions of intra- industry trade.7 The growing capabilities of developing countries have led to the rise in exports from low-wage to high-wage societies as well as to new possibilities for foreign direct investment and outsourcing from high-wage to low-wage economies. This fragmentation of production, enabled by new information and transportation technologies, is transforming industrial organizations in the advanced countries. From the long perspective, the view is one not of an irreversible progression towards ever higher levels of internationalization. Rather the picture is one of high levels at the onset of World War One, then a devastating shattering of the links of interdependence among the advanced countries, then, a gradual reweaving of the networks of the international economy , and a return by the turn of the 21st century to an international world with dangers and opportunities that some of our more prescient great-grandparents had already glimpsed. To draw lessons from the past does not require that we face an identical situation, or that the motivations of politicians and publics and their capabilities then and now be exactly the same. It means using historical cases to critically examine claims about causal relations between changes in the international economy and the range of political options available to societies, for example, the claims that economic integration and an open international system sharply constrain the social reform possibilities in democratic politics. Many of the theories that dominate today both in the academy and in the world of anti- 5 globalization activism assume that the pressures of globalization overwhelm the particularities of diverse national situations and produce the same distributional outcomes everywhere. It is the validity of this broad